As described in our prior client alert, President Trump threatened in July to impose tariffs of 50% on imports of products from Brazil in response to U.S. concerns regarding Brazil’s criminal prosecution of former President Jair Bolsonaro, recent judicial developments impacting social media regulation in Brazil, Brazil’s allegedly unfair trade practices, and Brazil’s support for BRICS policies that the Trump Administration has deemed to be “anti-American.” President Trump recently followed through on these threats by issuing Executive Orders (“EOs”) imposing cumulative tariffs against Brazil under the International Emergency Economic Powers Act (“IEEPA”). Separately, the United States took additional measures against certain Brazilian Supreme Court judges, primarily targeting the judge overseeing the Bolsonaro trial. In addition, the Office of the U.S. Trade Representative (“USTR”) is conducting an investigation of Brazil’s unfair trade policies under Section 301 of the Trade Act of 1974 (“Section 301”), which may result in the imposition of additional U.S. tariffs or other trade measures against Brazil. These measures may have significant implications for U.S. and Brazilian companies reliant on bilateral trade, as well as affect U.S. companies operating in Brazil and Brazilian companies operating in the United States.
Tariffs Against Brazilian Exports and Exceptions
On July 30, President Trump issued EO 14323, declaring a new national emergency relating to recent developments concerning Brazil and imposing a 40% tariff on many Brazil-origin imports, effective August 6. On July 31, President Trump issued an additional EO—EO 14326—modifying separate reciprocal tariffs imposed by the United States on imports from nearly all countries, announcing a country-specific reciprocal tariff rate for Brazil of 10%. Both tariffs were imposed under the President’s authority under IEEPA.
The new Brazil-only tariff of 40% applies broadly to all Brazil-origin goods imported into the United States, unless subject to a specific exemption . Annex I of the EO exempts several key Brazilian exports to the United States, including orange juice; civil aircraft, parts, and components; certain machinery; certain metals; and energy and energy products. Additional exceptions to the tariff also exist for products subject to existing or future U.S. national security-related tariffs imposed under Section 232 of the Trade Expansion Act of 1962 (“Section 232”). Currently in place are Section 232 tariffs ranging from 25% to 50% on certain imports of steel, aluminum, cars, auto parts, and copper. Additionally, the U.S. Commerce Department will soon complete additional Section 232 investigations launched earlier this year, which are expected to result in increased U.S. tariffs on imports of semiconductors, pharmaceuticals, timber, trucks, aircraft engines, drones, and polysilicon. Finally, the EO implements an “on the water” exemption from the tariffs for goods loaded on a vessel for transportation by August 6 and entered into the United States before October 5.
EO 14323 makes clear that the 40% tariff will apply in addition to U.S. reciprocal tariffs. Because Brazil is subject to a 10% reciprocal tariff rate under EO 14326, the cumulative tariff that will apply to U.S. imports from Brazil that do not benefit from any exemption is 50%. Finally, EO 14323 states that if Brazil retaliates against the United States by raising tariff rates on U.S. exports to Brazil, the United States will increase the 40% tariff rate by a corresponding amount.
Section 301 Investigation
On July 18, USTR published a Federal Register notice formally initiating the Section 301 investigation as directed by President Trump, identifying the following issues relating to Brazil’s trade practices to be a particular focus:
(i) Discriminatory practices affecting U.S. competitiveness in digital trade and electronic payment services;
(ii) The granting by Brazil of lower, preferential tariff rates to other countries, including under trade agreements with India and Mexico;
(iii) Weak anti-corruption enforcement and lack of transparency;
(iv) Denial of adequate and effective intellectual property protections;
(v) Poor market access for U.S. ethanol exports, a long-standing bilateral trade irritant; and
(vi) Failure to adequately address illegal deforestation, leading to an alleged unfair competitive advantage for Brazilian agricultural producers.
USTR is accepting public comments from any interested party on these issues and any other unfair trade practices by Brazil until August 18. Interested parties may also request to testify at a hearing hosted by USTR on September 3, and may submit rebuttal comments by a deadline to be established in September.
Visa Revocations and Global Magnitsky Act Sanctions
In parallel to the above trade measures, the Trump administration has also specifically targeted Brazilian Supreme Court Justice Alexandre de Moraes—the judge overseeing the trial of former Brazilian President Bolsonaro—and his allies. Moraes has faced criticism by major Brazilian newspapers and at least one international anti-corruption non-profit organization for his handling of the Bolsonaro case, which his critics argue has been contrary to the letter and spirit of the Brazilian Constitution. Moraes was also involved in high-profile cases impacting the regulation of social media platforms, which have also faced criticism.
On July 18, U.S. Secretary of State Marco Rubio ordered visas to be revoked for Moraes, “his allies on court, as well as their immediate family members effective immediately,” pursuant to Section 212(a)(3)(C) of the Immigration and Nationality Act. On July 30, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) sanctioned Justice Moraes under EO 13818, which builds upon and implements the Global Magnitsky Human Rights Accountability Act, asserting that Moraes has used his position to engage in “abusive judicial overreach” entailing “an oppressive campaign of censorship, arbitrary detentions that violate human rights, and politicized prosecutions—including against former President Jair Bolsonaro.”
Lula Administration Responses
In response to recent U.S. actions, Brazilian President Lula has responded by denying President Trump’s claims. Immediately following President Trump’s early-July tariff threats, the Lula administration moved quickly to implement the recently approved Economic Reciprocity Act, which allows the Brazilian executive branch to impose countermeasures against imports of goods or services, foreign investment, and intellectual property, in the absence of World Trade Organization (“WTO”) authorization. It also waives the Most-Favored Nation (“MFN”) principle, allowing Brazil to target specific countries and trade blocks.
Following this initial reaction, President Lula and members of his cabinet subsequently downplayed the potential for retaliation and instead emphasized their interest in finding a negotiated solution. Since the 50% cumulative tariff took effect, however, President Lula has requested cabinet members to prepare a menu of potential retaliatory measures against the United States. While the list is not yet public, statements by President Lula and members of his cabinet suggest that potential targets for Brazilian retaliation may include cross-retaliation related to patent protection for pharmaceuticals, taxation of dividends, and digital services. In parallel, Brazil initiated a WTO dispute against the United States on August 6.
Still, the Lula administration continues to pursue a strategy focused on de-escalating bilateral tensions and engaging the Trump administration. This includes:
- Seeking to reduce U.S. tariffs by responding to U.S. concerns through (a) changes to Brazil’s domestic policies on social media and data centers; (b) discussions with the Administration on a potential bilateral agreement on critical minerals and taxation; and (c) engaging in consultations with USTR as part of its Section 301 investigation.
- Mitigating the impact of any final tariff regime going forward on the Brazilian economy, through (a) pursuing additional exceptions to the new tariff level, and (b) federal policies to support local industries hit by these tariffs.
Meanwhile, at the sub-federal level, some governors—particularly in Brazilian states reliant on exports to the U.S. such as Goiás, Rio Grande do Sul, and São Paulo—have indicated they will implement additional tax and financial support mechanisms that will mirror those due to be announced at the federal level.
Brazil’s Supreme Court Responses
Since President Trump’s early-July tariff threats against Brazil, Justice Moraes has issued several orders in connection with former Brazilian President Bolsonaro’s trial, including some in direct response to the Trump administration’s actions. These orders against Bolsonaro include: (i) mandatory use of electronic monitoring (ankle bracelet); (ii) prohibition of social media use, meeting with foreign diplomats, approaching diplomatic premises of other countries in Brazil, speaking to other individuals under trial by the Supreme Court, and giving interviews; and (iii) house arrest. Justice Moraes has also ordered an investigation into alleged insider trading connected to President Trump’s tariff threats, and has also ordered mandatory use of electronic monitoring (ankle bracelet) by a Brazilian senator allied to Bolsonaro.
Looking Forward
Without any indication that bilateral tensions will abate in the immediate future, companies affected by these developments may benefit from exploring tariff mitigation strategies for the short and long term, including assessing the commercial impact of the tariffs, evaluating alternative suppliers, and considering options to shift merchandise to other markets. Outreach to government officials and/or participation in public consultation processes implemented under U.S. and Brazilian law may also be beneficial.
Covington is available to advise on tariff mitigation options, political engagement strategies, customs compliance, and potential legal challenges against the tariff measures, as well as disputes regarding contractual obligations between buyers and sellers of goods impacted by the new tariffs. Covington’s diverse team of policy and trade experts—which includes former U.S. and Brazilian government officials and business specialists—is uniquely positioned to provide thoughtful strategic advice to clients on these issues and related developments. If you have any questions concerning the materials discussed in this update, please contact the members of our team.
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